Citi Mexico Not Quite As Creditworthy As It Was Four Months Ago

Moody’s lowered its baseline credit and local currency ratings for Citigroup Inc. Mexican banking unit Banamex on Tuesday, while warning that Banamex’s stand-alone bank financial-strength rating could be next as the institution slogs through investigations into bad loans it extended to an oil-services company.

Banamex’s baseline rating was cut one notch, to Baa2, which implies moderate credit risk, to take into account uncertainty stemming from a number of ongoing investigations and reviews by federal and financial authorities both in Mexico and the U.S., as well as Citigroup’s and Banamex’s internal reviews, Moody’s said. Baa2 is two notches above junk-bond status….

The rating actions reflect the “severity of the fraud” and the “subsequent revelations about the deficiencies in Banamex’s risk management and auditing functions that permitted this fraud to occur,” Moody’s said….

“Banamex faces the difficult task of successfully executing an overhaul of its risk management and auditing functions. This entails strengthening of controls and monitoring, as well as structural changes to its risk measurement and process automation to bring them in line with Citigroup’s global practices. It will take time to fully implement these changes in governance, controls and procedures, and for them to effectively permeate the organization,” Moody’s said.

Still, let’s again note that credit ratings are more an art than a science, in that, like art, they are often made up out of thin air, and that the agencies do make mistakes, like when they jump the gun on announcing sovereign downgrades by two years. But, you know, it could be—and, around these parts, usuallyis—worse.

The European Securities and Markets Authority (ESMA) said that the incident, involving an email sent out to subscribers stating, “France (Republic of) (Unsolicited Ratings): DOWNGRADE”, when S&P’s rating of France had not been downgraded, breached regulations.

The move, which amounted to an embarrassing public dressing down rather than financial penalties, marks the first enforcement action by the watchdog against a ratings agency after it took over responsibility for regulating the sector in the European Union in July 2011.

SAC

Mary Jo White was the top federal prosecutor in New York City during Bill Bratton’s first run as the Big Apple’s top cop, and she learned a few lessons from his “broken windows” theory: Clean a place up a little, and throw the fucking book at the street urchins who are messing things up with […]